Free will. Free market. What's so hard to understand about that?

What we are witnessing today is not a failure of the free market. It is the failure of social engineering as economic policy. And it’s a disaster of epic proportions.

Nobody’s disputing that this disaster was precipitated by irresponsible lending practices, or that Fannie Mae and Freddie Mac were at the root of the whole debacle, though the ramifications have now spread far beyond them. What people are arguing about is the interpretation of the events that led us here, what should have been done differently, and what should be done to contain the fallout now that the pyramid scheme has blown up.

Hard core free market proponents, like me, will say that Fannie Mae and Freddie Mac were a mistake from the beginning. The government should have kept its nose out of the home mortgage industry, and not attempted to manipulate the market to enable people who couldn’t afford houses to buy them. On the other hand, proponents of the “government is good” and “more is better” philosophy will say the problem was that there wasn’t enough government manipulation. (Could there ever be?)

But, curiously, in 2005, when Alan Greenspan told Congress that Fannie Mae and Freddie Mac were “placing the total financial system of the future at a substantial risk,” and the Senate Banking Committee proposed a reform bill requiring tighter regulation of those two entities, the Democrats opposed it, on a strict party line vote, crushing the bill before it got out of committee. Barack Obama, Hillary Clinton, and Christopher Dodd all voted against it. (John McCain, incidentally, was one of the co-sponsors of the bill.)

Huh? Democrats voting against more regulation? Republicans voting for it? One would expect Republicans to favor less regulation, as regulation is antithetical to a free market. But, in this case, it already wasn’t a free market. A free market has its own natural checks and balances. Once the government has removed or impaired any of those natural checks and balances, the market loses its equilibrium and bad things can happen. What the Republicans were attempting to accomplish by proposing tighter regulations on Fannie Mae and Freddie Mac was to artificially restore the natural constraint that had been removed by shifting the risk from the lenders to the taxpayers.

In a free market, the desire for profit is counterbalanced by the aversion to risk. If the risk incurred by an investment or loan outweighs the profit potential, it’s not in the investor’s/lender’s best interest to participate, so the transaction doesn’t occur. However, when the government removes the risk associated with a bad transaction, by assuming the risk itself, then the natural constraint of risk aversion that would apply in a truly free market is eliminated, and investors will take risks that would otherwise be unacceptable. That’s what happened in the case of Fannie Mae and Freddie Mac. The taxpayers assumed the risk, and Fannie Mae and Freddie Mac made unsound investments.

In today’s mortgage industry, mortgages are always packaged up and sold to aggregators, who sell them to bigger aggregators, with Fannie Mae and Freddie Mac at the top of the pyramid as the granddaddies of all aggregators. Because Fannie and Freddie had no risk aversion, lenders further down the chain were free to take risks they wouldn’t otherwise take, knowing the aggregators would buy up the high risk (subprime) mortgages anyway. This was intentional.

Affordable housing is a euphemism for making home loans available to people who would not qualify for a loan under a free market system. The reason someone would not qualify for a loan in the free market is because they present too high a risk. In other words, they can’t afford to pay off the loan. Fannie and Freddie represented a wide scale experiment in social engineering. It was an attempt to use federal policy to “level the playing field” so anybody could “afford” to buy a home whether they could actually afford to pay for the home or not.

When the Republicans wanted to tighten the reins on Fannie Mae and Freddie Mac, and preclude them from making excessively risky investments, it would have meant they could no longer fulfill the mission of making homes “affordable” to those who couldn’t afford them. That’s why the Democrats opposed the bill. And that’s why we’re where we are today.

The great experiment in social engineering has now failed. Dramatically. And, because the experiment was backed by the full faith and credit of the U.S. taxpayer, it is our money, and our future, that is getting called in as collateral for this grand social experiment.

Anybody who blames this failure on the free market is either dishonest or naive. It was liberal social policy masquerading as economic policy that got us into this mess. If you want to see more of the same in the future, there are plenty of Democrats still in Congress. And there’s one running for president, too.

Don’t invite Ron Paul to your party, unless you want him to tear it apart. Everybody thought Hillary Clinton was going to pull a fast one at the DNC, and do something devious to undermine the rival whom the party picked over her. But she didn’t. She endorsed Obama fully and wholeheartedly, doing her best to reunite a party torn asunder by their bitter rivalry. Would that Ron Paul had such grace. But, like a spoiled child, if he can’t be the nominee, he’ll take his marbles and go hold his own party somewhere else, doing his best to create a distraction from the RNC, siphon off as many votes as he can, and undermine the very party of which he claims to be a member.

Ron Paul used to call himself a Libertarian. I was a Libertarian for 30 years before switching to the Republican Party a couple of months ago. I still believe in the traditional libertarian ideals of individual freedom, individual responsibility, and limited government. The reason I switched parties is because I recognize the practical need to unite with other conservatives to focus all our efforts behind electing the most fiscally conservative candidates, in the interest of reining in the growth of big government and the proliferation of socialist economic policies. In this election, that candidate is John McCain. And I anticipate that it’s going to be a very close race.

Ron Paul doesn’t have a chance, never will have a chance, and the only possible effect of his little diversion will be to divide the conservative vote and help get Obama elected. Ron Paul calls himself a Republican. His political positions are far closer to McCain’s than to Obama’s. But Ron Paul doesn’t really care who gets elected to lead our country. All he cares about is the greater glory of Ron Paul. He’s nothing but a narcissist who’s willing to sacrifice the best interests of his party, and his country, to his own personal ego.

This is not a first for him. The Libertarian Party used to be the strongest third party in the country. In 1980, Ed Clarke made a credible run for the presidency and drew a lot of positive attention to the party. The Libertarian Party was gaining momentum and support throughout the nation, until 1988 when Ron Paul single-handedly split the party in two.

The Libertarian Party has always stood for minimal government involvement in people’s private lives. Traditionally it has had a strong pro-choice contingent. But a lot of Libertarians are also pro-life. Some Libertarians uphold the individual rights of women to make their own choices regarding their own bodies and lives. Others believe we must protect the individual rights of the unborn. But the party had never made abortion the core focus of their platform, and rightly so, because there’s little any candidate can actually do about this highly emotional issue. Changing the law would require nothing less than a Constitutional amendment.

But Ron Paul decided to make it a dividing issue for the party. After being chosen as the official Libertarian candidate, he made abortion one of the top planks in his personal platform, referring to himself as a “Pro-Life Libertarian.” That split the party right down the middle. The pro-choice Libertarians felt used and undermined, so they went looking for their own candidate. The candidate they found was Russell Means. Russell Means, IMHO, was simply an opportunist who saw running for president as a good way to get a national venue to highlight his own special interests. The effect was a complete split of the previously united Libertarian Party, over an issue that had never been a dividing issue before. That was, effectively, the end of the Libertarian Party as a viable third party. It never did recover.

Ron Paul must have felt a great sense of power at having been able to divide and conquer an up-and-coming political force in the nation, all by himself. Now he’s looking to do the same thing to the Republican Party. It must be a real rush for Ron Paul to have such power. Too bad for the rest of the Republican Party but, who cares? At least Ron Paul will make a good showing and everybody will know how popular he is. He’s pathetic.

The left never seems to tire of reminding us that “Bush lied about Iraq having WMDs!” But was it really a lie? If so, how so? It is an established fact that Iraq had developed and used WMDs previously, against its own citizens, though the left seems to have conveniently forgotten this. In his 1998 State of the Union address, President William J. Clinton said:

Saddam Hussein has spent the better part of this decade, and much of his nation’s wealth, not on providing for the Iraqi people, but on developing nuclear, chemical, and biological weapons, and the missiles to deliver them.

The only real question was, did Iraq still have stockpiles of WMDs immediately prior to the beginning of the Iraq war? At the time, every major power in the world believed that it did. Even the U.N. believed it. Yet one never hears anybody saying the U.N. lied, or Tony Blair lied, or Jacques Chirac lied. It’s always Bush, and Bush alone, who “lied.”

Even assuming there were no WMDs, if President Bush, like all the other world leaders at the time, given the best evidence available, believed there were WMDs in Iraq, was it a lie for him to say what he believed? If not, the claim that he lied must be based on an assumption that he didn’t actually believe there were WMDs in Iraq. But why would he not have believed it, considering that everybody else did? It’s generally accepted today that the reason Saddam Hussein didn’t allow the U.N. inspections was because he wanted his neighbors to believe that Iraq still had WMDs. Was there ever any reason to conclude that Bush knew the “truth” when everybody else was taken in by Hussein’s bluff? If not, Bush did not lie. He was, at worst, mistaken.

But it’s always easier to predict the past than the future. As history unfolds, it’s starting to look like, not only did Bush not lie, neither was he mistaken. There is new evidence that Iraq did, in fact, have WMDs, which it was systematically transferring to Syria all the while it was stalling the U.N. inspectors. This new evidence corroborates older evidence that was dismissed by the left at the time as too “convenient.” Yet the evidence continues to grow. What will the left say if confronted with incontrovertible evidence that there actually were WMDs in Iraq? Will they apologize to President Bush for the “lies” they’ve been telling about him for the past five years? Or will they flat out refuse to acknowledge the evidence because it doesn’t support their worldview? (My money is on the latter.)

An upcoming joint US-Israel report on the September 6 IAF strike on a Syrian facility will claim that former Iraqi president Saddam Hussein transferred weapons of mass destruction to the country, Channel 2 stated Monday.

The man who served as the no. 2 official in Saddam Hussein’s air force says Iraq moved weapons of mass destruction into Syria before the war by loading the weapons into civilian aircraft in which the passenger seats were removed.

The Iraqi general, Georges Sada, makes the charges in a new book, “Saddam’s Secrets,” released this week.

Several different intelligence sources raised red flags about suspicious truck convoys from Iraq to Syria in the days, weeks, and months prior to the March 2003 invasion of Iraq.

These concerns first became public when, on December 23, 2002, Ariel Sharon stated on Israeli television, “Chemical and biological weapons which Saddam is endeavoring to conceal have been moved from Iraq to Syria.” About three weeks later, Israel’s foreign minister repeated the accusation. The U.S., British, and Australian governments issued similar statements.
…
Two former United Nations weapon inspectors in Iraq reinforced concerns about illicit transfer of weapon components into Syria in the wake of Saddam Hussein’s fall. Richard Butler viewed overhead imagery and other intelligence suggesting that Iraqis transported some weapons components into Syria. Butler did not think “the Iraqis wanted to give them to Syria, but … just wanted to get them out of the territory, out of the range of our inspections. Syria was prepared to be the custodian of them.” Former Iraq Survey Group head David Kay obtained corroborating information from the interrogation of former Iraqi officials.
…
The Daily Telegraph reported prior to the 2003 Iraq war that Iraq’s former special security organization and Shawqat arranged for the transfer into Syria of twelve mid-level Iraqi weapons specialists, along with their families and compact disks full of research material on their country’s nuclear initiatives. According to unnamed Western intelligence officials cited in the report, Assad turned around and offered to relocate the scientists to Iran, on the condition that Tehran would share the fruits of their research with Damascus.

So, when is a lie not a lie?

a) When it’s an honest mistake.
b) When it’s the truth.

At this point, we don’t know which of the above is the case. But we do know that there is absolutely no evidence that Bush ever actually lied about WMDs in Iraq. So when will the left stop braying that?

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.
— John McCain

Despite the fact that Senator McCain has said the economy isn’t his strong point, he has a lot stronger grasp of basic economic principles than anybody else running for president, not to mention a lot of other people in Washington who ought to know better.

In addition to the Bear Stearns bailout, since the beginning of the year, the Fed has loaned over $260 billion to banks that got into financial trouble by making bad mortgage loans. The Foreclosure Prevention Act of 2008 is on the horizon, and there’s another bill lined up behind it to extend an additional $300-400 billion in federally guaranteed (that means guaranteed by you and me) mortgages for people who overextended themselves to buy houses that were well beyond their means.

Senator Obama talks about “folks [being] tricked into purchasing loans they can’t afford.” Both Senators Obama and Clinton think we need to kick in a $30 billion dollar emergency housing fund (at taxpayer expense) to help bail out these poor victims, never mind that they’re victims of their own greed and irresponsibility. Senator Clinton also wants to freeze subprime mortgage rates and impose a 90 day moratorium on foreclosures for the poor dears. And, earlier this week, Senator Clinton suggested that perhaps the government should start buying up foreclosed homes. It’s not enough for the government to be in the healthcare business, now she wants to get it into the real estate business, too. (Is there any business Mrs. Clinton doesn’t think the government should be in?)

While Senators Clinton and Obama are leaping over one another trying to come up with more innovative and expensive ways for the government to manipulate the housing market, Senator McCain is quietly saying it isn’t the role of the government to bail out either the banks or the borrowers. The Democrats scoff. Democratic National Committee Chairman Howard Dean sneers that McCain is taking “the same hands-off approach that President Bush used to lead us into this crisis.”

What the Democrats fail to understand is the basic principles of economics. (But what else is new?) It was not a “hands off” policy that got us into this mess, but a “hands on” policy of lowering interest rates and expanding FHA, FNMA, and FHLMC financing to encourage unprecedented (and unwarranted) growth in the housing market. The government got us into this situation by meddling in the free market. It isn’t going to get us out by meddling more. What needs to happen is the market needs to find a balance where the demand meets the supply. The only way for that to happen is to let it occur naturally. Yes, it means housing prices will drop. They’re doing that anyway. Yes, it’s painful. But it has to happen.

Federal policies aimed at making it easier for first time home buyers to buy houses before they could actually afford those houses led to an artificially high demand, which artificially inflated prices. People (and financing companies) started playing fast and loose, speculating that the manic spiral in home prices would continue indefinitely. But it couldn’t. Supply increased to meet demand, interest rates went up, people who overextended themselves couldn’t meet their payments and started defaulting, demand fell off just as supply was peaking, and the market was oversaturated. Now it has to correct.

The laws of economics weren’t made up by economists, any more than the laws of physics were made up by physicists. These “laws” are based on observation and analysis of naturally occurring phenomena. They can’t be changed or wished away. Imbalances do occur but, over time, they correct themselves. The housing market is self-correcting now. It will eventually reach equilibrium. Any measures that attempt to forestall that will only postpone the inevitable. A problem deferred is not a problem solved.

The Democrats insist that the government can’t just stand by and do nothing. Something bad is happening. We must do something! Anything! They have no idea how to solve the problem, because the problem can’t be solved by more government meddling, and government meddling is the only thing they know how to do. But, since they can think of nothing more embarrassing than standing around doing nothing, they’re leaping over each other trying desperately to show us that they will do something. (Not nothing, like Senator McCain.) And what they’ll do is what they always do. When they see a problem, they throw money at it. Your money. My money. Everybody’s money. Unfortunately, that won’t solve the problem. Because, sometimes, nothing is the right thing to do.

The Democratic response, as usual, is like a parent with a spoiled child. They think it’s their job as parent to prevent their child from ever experiencing any pain, so they go to any lengths to shield it from the consequences of its own actions. But a child who never faces consequences never learns. Sometimes pain is necessary, especially when it’s a natural consequence of irrational behavior.

OK, McCain it is. I’m not happy. You’re probably not either. I don’t know who all these “Republicans” are who are voting for him in the primaries, because I’m not aware of one person who likes him. But, be that as it may, the RINOs have spoken and McCain is going to be the Republican candidate. What do we do now?

The pragmatists will weigh the pros and cons and decide which candidate will do less harm to the country. The petulants will go home and sulk, and either not vote at all or throw away their vote on a third party candidate. The punitives will actually cross over and give aid and comfort to the enemy in our country’s time of crisis, and cast their vote for the Democrats out of spite.

From a pragmatist perspective, what are the key issues? The economy, the war, immigration, healthcare, and Supreme Court appointments are probably the most important.

The economy is a big one, because there’s a fundamental philosophical difference in the way Republicans and Democrats address the problem. Republicans believe in fixing the economy by cutting taxes to stimulate growth. Democrats believe the way to fix the economy is by raising taxes and redistributing the wealth. Which do you prefer?

McCain’s plan is to extend the Bush tax cuts, create more tax cuts for middle class families, make the current low capital gains and dividends tax rates permanent, and require a 60% majority in Congress to raise taxes in the future. He’ll also cut government programs that don’t work, earmarks, subsidies, and pork barrel spending.

The war is another big one. Would you rather we fight it over there or over here?

McCain fully supports doing whatever is necessary to prosecute the war to the finish. He has consistently supported it from the start, and was an early proponent of the increase in troops.

Mrs. Clinton and Obama both supported the Iraq spending bill that would have brought most of our troops home by next month. Mrs. Clinton has promised that, if elected, she’ll bring all the troops home within two years. Obama promises to do it in one. Then we can fight the terrorists on our own soil. That ought to be fun.

On immigration, it’s a wash. They all supported the same immigration bill. Yes, McCain was a sponsor of it, but it’s the one thing on which they all agree, so there’s no win here.

On healthcare, we all know what Mrs. Clinton’s plan is.

Mrs. Clinton wants to legislate that everybody has to buy health insurance. For those who can’t afford it, she’ll just take the money out the rest of our pockets to make up the difference.

There are likely to be three Supreme Court Justice appointments during the next administration.

McCain is a strict constructionist.

Mrs. Clinton would pack the court with liberal judges who believe we all need to be protected from ourselves more than we do from criminals and, like children, we can’t be trusted with firearms. (It’s kind of hard to defend yourself in an emergency with a trigger lock on your gun, but Mrs. Clinton thinks it’s necessary so we don’t accidentally shoot ourselves.)

There’s another consideration for the pragmatists. The president appoints the heads of a lot of federal agencies. If we have a Republican (or even a RINO) in the White House, these federal agencies are going to be run by Republicans. If we elect the Clintons or Obama, they’ll be run by socialists. Remember, it’s not just the president you’re voting for, it’s the party, too.

Question of the day: If McCain were to choose Fred Thompson as his running mate, would that change your mind?

Why do I keep picking on poor Mrs. Clinton? Hasn’t she suffered enough (after living with Bill all these years)? I pick on her because she’s a serious contender for the office of President of the United States. And, frankly, that makes me very nervous. It has nothing to do with the fact that she’s a woman. It has everything to do with her political agenda.

It sounds great, on the surface. But what isn’t stated is that, if insurance companies can’t deny coverage to anybody, even those who make lifestyle choices that put them at greater risk, and they can’t raise rates for those with greater risk factors, the only alternative left to them is to raise the rates for those who are generally healthy to cover the much higher costs of insuring those who are not. Making the healthy pay more for health insurance so those who use it more can pay less brings to mind a new twist on Marx’s old motto: From each according to their health, and to each according to their infirmity. — But she also promises to make health care affordable for everybody. And that’s where the redistribution of health melds into (surprise!) the redistribution of wealth.

Her plan “offers tax credits to limit health care premiums to a certain percentage of a family’s income. Cost estimated at $110 billion annually, to be paid for by eliminating the Bush tax cuts for those earning over $250,000.”1

I keep hearing this and, the way it’s always phrased, it sounds like Bush implemented special tax cuts for those earning over $250,000. Sounds kind of like he’s doing favors for his rich buddies, doesn’t it? And that’s exactly what it’s intended to sound like. But, just to be clear, the tax cuts in question apply to everybody, not just to those making over $250,000. What Mrs. Clinton is proposing is to make those who earn “too much” ineligible for them. (And the other Democrats are proposing the same thing.) That was exactly the reasoning behind the Alternative Minimum Tax when it was first implemented in 1969, and only affected 155 taxpayers. In 2000, one million households were affected by the AMT, and it’s projected to be 30 million by 2010. This year, 20% of all taxpayers will be affected by it, some earning as little as $50,000.2

It’s easy to win votes by saying we’ll just get the wealthy to pay for whatever we want. Since there are a lot more of us than there are of them, the Democrats figure it should be easy to garner support for a plan that sounds like soaking the rich to benefit the rest of us. But just remember, there are a lot of other tax cuts they want to eliminate too, and, chances are, some of them will affect you.

Hillary Clinton has received both criticism and support for getting choked up in response to a question about “how she does it,” after her humiliating defeat in Iowa and getting smirked at by Fluffy in nationally aired debates. Some say the crack in her brittle facade was a calculated attempt to come off as more “human” by showing her vulnerable side. Others think she was honestly on the verge of tears, out of genuine, unfeigned self-pity.

Nobody has come right out and asked her, but speculation continues in the media, both within her own party and without. Apparently hoping that addressing the issue will put it to rest, she has finally deigned to respond in this remarkably candid audio clip.

Referring back to the video clip in yesterday’s post, this is how I heard Mrs. Clinton’s message. “You kids talk about change. — You don’t even know what you’re talking about. — I’ve been through the Change. I’ve experienced the hot flashes, the mood swings, the night sweats… So don’t tell me about Change!”

The other candidates sat there, quietly enduring the harangue, waiting for it to pass. Fluffy even had a little smirk on his face, like a castigated teenager trying not to crack up because it would only make Mom madder. I kept expecting her to shriek “After all I’ve done for you!” (which was, after all, largely the subtext of her diatribe).

Mrs. Clinton did not come off as the next leader of the free world, or the future Commander in Chief of the world’s most powerful military. She came off as a frazzled mother at the end of her rope. — And, according to Drudge this morning, that may be where she is…

Franky, I’m not crazy about any of the candidates, but I guess I could settle for any of the remaining Republicans — except Huckabee. I just don’t get what the Huckabites see in him.

If Iowa were representative of the rest of the country, and the race came down to Huckleberry vs. Obama, I think I’d have to abstain. Obama’s got the cute factor going for him, with his unpretentious boyish charisma. But, as far as issues go, he ranks even lower than Mrs. Clinton and Fluffy on my scorecard. If this were a personality contest, he’d have it all sewed up. And that’s a problem. Because, for a lot of people, it is a personality contest. Obama may just carry the Democratic party because he really is a likeable guy, while Mrs. Clinton is an excruciating itch (and you can spell that with either a w or a b, depending on your PCQ*).

I thought it was very enlightening to watch Mrs. Clinton in this debate.

She comes across as, not only imperious and belligerant, but bitterly incredulous that the other candidates are too benighted to recognize her manifest right to be the next president of the United States. How dare those pipsqueaks have the unmitigated gall to run against her?!

Did anybody else notice she used the word “I” 13 times in a one minute, six second clip? How megalomaniacal does one have to be to refer to themselves every five seconds? — Yes, Mrs. Clinton, it really is all about you, isn’t it? After all, you had to put up with all those years of playing first lady to one of the world’s most pre-eminent playboys, when you knew you could do a better job if only you could get out from under his shadow. Who knows, maybe you were even the one making policy all those years while he was otherwise occupied with his [ahem] “hobby.” After all the humiliations you suffered, it just wouldn’t be fair if you didn’t get your just desserts, would it? So America owes you the presidency! I understand, Mrs. Clinton. Really, I do. (But I’d rather I didn’t, thank you…)